Castle Biosciences, Inc.

Good afternoon and welcome to CASEL Biosciences' fourth quarter and full year 2024 conference call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question and answer session. I would like to turn the call over to Camilla Zuccaro, Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Thank you, Operator. Good afternoon, everyone. Welcome to CASEL Biosciences' fourth quarter and full year 2024 results conference call. Joining me today is CASEL's founder, president, and chief executive officer, Derek Massold, and chief financial officer, Frank Stokes. Information recorded on this call speaks only as of today, February 27, 2025. Therefore, if you are listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the investor relations page of the company's website for approximately three weeks following the conclusion of the call. Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our financial outlook, TAM, intended use populations, and similar items referenced in our earnings release issued today, and statements containing projections regarding future events or our future financial or operational results and performance, including our anticipated 2025 total revenue, our expectations regarding reimbursement for our products, including with regard to our decision DX FCC test, opportunities for growth, impacts of seasonality and other trends, the size and structure of our commercial teams, the timing of targeted milestones, and the impact of our investment in growth initiatives, including our ability to achieve long-term growth and drive stockholder value. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties. And there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's annual report on Form 10-K for the year ended December 31, 2024 under the heading Risk Factors and in the company's other documents and reports filed or to be filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States, or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the investor relations page of the company's website. I will now turn the call over to Derek.

Thank you, Camilla, and good afternoon, everyone. 2024 was another exceptional year for CASEL, and I'm extremely proud of the strong execution by our entire team. With fourth quarter revenue of $86.3 million, we grew revenue by 51% year-over-year to $332.1 million for the full year of 2024. Additionally, total test report volume grew by 36% in 2024 compared to 2023. Further, as of December 31st, 2024, the company's cash, cash equivalent, and marketable investment securities totaled $293.1 million, a $50 million increase over December 31st, 2023, which we believe will enable us to continue executing on our growth initiatives. Today, I will walk you through business highlights in the fourth quarter and full year 2024 and then Frank will provide additional financial highlights before we turn to your questions. Starting with our core dermatology business, we delivered growth of 17% for combined DecisionDx melanoma and DecisionDx test in CC over 2023. Our dermatologic commercial team supports the promotion of both of these tests. Therefore, we look at the growth of these tests combined as the appropriate litmus test for our dermatologic portfolio's performance. For DecisionDx melanoma specifically, We delivered 36,008 test reports in 2024, an 8% increase over 2023. After correcting for underreporting, we believe the addressable market comprises approximately 130,000 patients, meaning that we exited 2024 with roughly 28% market penetration. We're pleased with our volume growth for 2024, and I would like to provide some additional context specifically for our fourth quarter volume for decision DX melanoma. We saw typical seasonality, with the fourth quarter historically having the fewest working days compared to the other three quarters. Specifically in the fourth quarter of 2024, we had two fewer working days than in the third quarter of 2024. Further, the overlap of Christmas and Hanukkah in December led to additional practice closures as compared to 2023. As a reminder, our decision-based melanoma test results provide clinicians and patients with actionable results aiming at answering two questions. The first being, does this patient have a likelihood of a positive septal lift node that is below 5%? 5% has been the traditional guideline threshold for avoiding versus offering a septal lift node biopsy surgical procedure. We have, in multiple prospective and retrospective studies, consistently shown that our decision DX melanoma test is able to identify patients who have a less than 5% rate of a positive sentinel lymph node biopsy. We've also shown that patients who avoided a sentinel lymph biopsy surgical procedure have excellent long-term outcomes. This data consistency sets our decision DX melanoma test apart. The second question our test results aim to answer is what is the five-year likelihood of this patient having a recurrence? Again, we have shown in multiple prospective and retrospective studies that our DecisionDX melanoma test is an independent predictor of recurrence, that clinicians use our test results to assist with their decisions as to whether to escalate or deescalate treatment pathways, and that clinically tested patients show improved survival compared to patients who did not receive our DecisionDX melanoma test as part of their clinical care. We continue to develop evidence to support our DecisionDX melanoma test, and currently we have more than 3,000 patients enrolled in clinical studies. We believe that the fact that we have been able to consistently demonstrate that we are adding independent value to traditional staging factors sets our DCDX melanoma test apart. These two uses of our test impact patients across all stages of localized melanoma, and we believe we have significant room for further penetration across clinical stages. Further, based on our 2024 data for this test, our orders generally align with the SEER data of incidence by T-stage patients diagnosed with melanoma. Despite having launched DecisionDx Melanoma several years back, we continue to see new clinicians ordering our tests for the very first time. Specifically in 2024, we had 1,816 clinicians order DecisionDx Melanoma for the very first time. This was similar to the number of first-time ordering clinicians in 2023. So while some existing customers may have settled into where they see the sweet spot for our tests, we continue to have strong interest in usage that we need to then turn into further adoption. We currently anticipate mid to high single-digit volume growth for the full year 2025 or the 2024, with the first quarter 2025 being flat or slightly down compared to the fourth quarter 2024, in line with typical seasonality and our expectations. Moving on to our decision of the SBCC test, we continue to see strong test report volume momentum with 16,348 test reports delivered in 2024, an increase of 43% compared to 2023. Further, we saw 1,510 new ordered clinicians for our DecisionDx SCC test in 2024. We believe that the addressable market of patients diagnosed with cutaneous squamous cell sarcinoma and the presence of one or more clinical or pathologic risk factors is approximately 200,000 patients. meaning that we exit 2024 with roughly 8% marker penetration. As a reminder, our DecisionEX SCC test provides two actual test results. The first is predicting the risk of metastasis, and the second is predicting response to adjuvant radiation therapy. These uses are supported by 22 peer-reviewed publications since the launch of the test, including six studies published in 2024. Two of which represented the largest and the second-largest studies ever published that evaluate the effectiveness of adjuvant radiation therapy in patients with cutaneous squamous cell carcinoma. Now, let's turn to reimbursement. In January 2025, Novatos, the Medicare administrative contract with jurisdiction over a laboratory in Pittsburgh, finalized the Local Coverage Determination, or LCD. That included a language signifying non-coverage by Medicare, which is in the SSCC. The LCD effective date, originally in February 23, 2025, was subsequently extended to April 24, 2025. To the LCD becoming effective as is, we would not anticipate receiving Medicare reimbursement for decision ex-SCC tests performed on or after April 24, 2025. We will be disappointed with the impact on patient care if we lose Medicare coverage, given the strength of the evidence in decision ex-SCC's ability to predict the risk of metastasis impact in treatment pathways and the ability to predict responsiveness to adjuvant radiation therapy. I will remind you that a cost effectiveness article that was published in January 2024 showed that using DecisionDx SCC to guide adjuvant radiation therapy physicians could result in substantial savings to the Medicare program of up to $972 million per year. Let's turn to our tissue cipher test, our spatial omics test designed to determine a patient's individual risk of progression from varicose esophagus to high-grade dysplasia or esophageal cancer. We have published multiple performance studies showing that tissue cipher consistently outperforms traditional clinical and pathologic factors, providing physicians with an actionable assessment of the likelihood of a patient's five-year risk of progression to high-grade dysplasia or esophageal cancer. As such, we are thrilled with the positive reception TissueCypher has received from the gastroenterology community. In fact, we delivered 20,956 TissueCypher test reports in 2024 compared to 9,123, representing 130% growth. And for the year ended December 2024, we had 1,234 new ordering clinicians for the TissueCypher test. Importantly, TissueCypher achieved a significant milestone in 2024, surpassing 25,000 test reports delivered since we acquired the test at the end of 2021, suggesting more clinicians may be recognizing its value. I'd also remind you that in 2024, the American Gastroenterological Association, or AGA, released new clinical practice guidelines in endoscopic eradication therapy for Barrett's esophagus, stating that it can be effectively treated with endoscopic procedures like ablation, but noting identifying high-risk patients is crucial. Importantly, tissue cipher was highlighted as the first prognostic assay capable of identifying patients with Barrett's esophagus at risk of progressing to high-grade dysplasia or esophageal cancer. This recognition by the AGA reinforces tissue cipher's role in providing personalized and clinically validated risk stratification. helping clinicians better manage patients with varicose esophagus. As you look at 2025 and beyond, the growth drivers we expect for tissue cyber include, one, the commercial team roughly doubling in size during the first half of 2024, with continued expansion throughout the second half of 2024 and the first few months of 2025. Two, the unmet clinical need and value of our tests being further accepted by clinicians. And three, a strong focus on education and awareness. We believe that the addressable market of patients diagnosed with Barrett's esophagus with non-dysplastic, indefinite, or low-grade dysplasia is approximately 415,000 patients per year in the U.S., meaning that we exited 2024 with roughly 5% market penetration. We believe in our ability to maintain strong momentum for future growth and currently expect tissue cycle volume to be significant for the full year 2025 compared to 2024 although not as high as 130% we delivered in 2024 compared to 2023. Turning to our mental health business, due to changes in the market and our focus on allocating resources efficiently on profitable growth, in late 2024, we revised our commercial strategy for our IGENX test, reallocating resources to inside sales and non-personal promotions. In December 2024, we observed month-to-month decreases in IGENX test reports which persisted throughout year-end 2024. We continue to offer our IGNX tests and monitor performance. However, in 2025, we expect test report volumes and net revenues will continue to decrease, and the long-term performance of this test remains uncertain. And with that, I'll now turn the call over to Frank.

Thank you, Derek, and good afternoon, everyone. As Derek highlighted, we delivered strong 2024 results continuing our track record of consistent execution and strong financial performance. In the fourth quarter of 2024, we delivered total revenue of $86.3 million, 31% increase over the fourth quarter of 2023, and delivered $332.1 million for the full year of 2024, a 51% increase over 2023 and exceeding our guidance range. The full-year 2024 increase was driven predominantly by test volume growth for our dermatologic and non-dermatologic tests, as well as our tissue cipher tests, along with a higher ASP for our decision DXFCC tests compared to 2023. Importantly, we've now grown total revenue at a 52% TAGR over the last five years. Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $85.8 million for the quarter and $333.8 million for the full year of 2024. For 2025, we anticipate generating total revenue of $280 to $295 million, which reflects Decisions EX FCC no longer being reimbursed by Medicare for services performed on and after April 24th, 2025. Our gross margin during the fourth quarter was 76.2%, compared to 77.8% in the fourth quarter of 2023. And our gross margin for the full year was 78.5% compared to 75.4% in 2023. Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods, was 81.1% for the quarter and 82% for the year. compared to 82.3% and 79.9% for the same periods in 2023. With the anticipated loss of DecisionDx FCC coverage in late April, we currently expect gross margins in the low to mid 70% range and adjusted gross margin in the mid to high 70% range for all 2025. Turning to expenses, our total operating expenses, including cost of sales for the quarter, were $82.3 million compared to $71.8 million for the prior year, and were $323.4 million for the full year of 2024 compared to $287.8 million for 2023. Sales and marketing expenses were $123.5 million for the full year compared to $113.7 million for 2023. The increase is mainly due to higher personnel costs, higher sales-related travel expense, and higher organizational and business development activities. Increases in personnel costs reflect a higher headcount as well as merit and annual inflationary and wage adjustments for existing employees. General and administrative expenses were $76.6 million for the full year compared to $66.5 million for 2023. The increase is primarily attributable to higher personnel costs, professional fees, and IT-related costs and expenses. Increases in personnel costs reflect headcount expansions in our administrative support functions, as well as merit and annual inflationary wage adjustment for existing employees. Cost of sales expenses were $60.2 million for the full year compared to $45 million for 2023, primarily due to higher personnel costs and higher expenses for supplies and depreciation. Increases in personnel costs reflect higher headcount to support business growth in response to growing test report volumes, commencement of operations in our new Pittsburgh laboratory in the second quarter of 2023, as well as merit and annual inflationary wage adjustments for existing employees. R&D expenses were $52 million for the full year compared to $53.6 million for 2023, primarily due to lower clinical studies costs, lower organizational development costs, and lower expense for laboratory supplies, partially offset by higher personnel costs. Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D expense, and SG&A expense, was $50.3 million for the full year, down slightly from $51.2 million for 2023, despite an increase of 25% in total headcount over 2023. Interest income was $12.9 million for the full year 2024, compared to $10.6 million in 2023, primarily a result of higher balances held in marketable investment securities. Income tax expense was $3.3 million for the full year 2024, compared to $0.1 million in 2023, as we realized profitability and positive operating cash flows for the full year 2024, primarily a result of state income taxes and the realization of pre-tax income in 2024. Our net income for the fourth quarter of 2024 was $9.6 million compared to a net loss of $2.6 million for the fourth quarter of 2023. And our net income for the full year of 2024 was $18.2 million compared to a net loss of $57.5 million for 2023. Diluted earnings per share for the fourth quarter was 32 cents a share compared to a diluted loss per share of 10 cents in the fourth quarter of 2023. Diluted earnings per share for the full year 2024 was $0.62 per share compared to diluted loss per share of $2.14 for 2023. Adjusted EBITDA for the fourth quarter was $21.3 million compared to $9.4 million for the comparable period in 2023. For the full year 2024, adjusted EBITDA was $75 million compared to a negative $4.4 million in 2023. Net cash provided by operating activities was $24.4 million for the fourth quarter of 2024 and $64.9 million for the year ended December 31st, 2024. Historically, in the first quarter of the year, we have seen net operating cash use due in part to annual cash bonus payments and certain healthcare benefit payments that do not recur during the remaining three quarters of the year. We expect 2025 to follow this historical trend. Importantly, we continue to expect to deliver positive net cash flow from operations for the full year of 2025. Net cash used in investing activities was $50.1 million for the 12 months ended December 31, 2024, and consisted primarily of purchases of marketable investment securities of $205.7 million and purchases of property and equipment of $28.3 million, partially offset by the maturity of marketable investment securities of $183.9 million. We ended the year with cash, cash equivalents, and marketable securities of $293.1 million, which we believe will allow us to invest in the business for long-term growth and to continue our efforts to drive stockholder value. In conclusion, we delivered strong financial results in 2024. In an effort to ensure the company is positioned for success in 2025, we expect to remain focused on strong execution coupled with our sound capital allocation strategy, including strategic opportunities. I'll now turn the call back to Derek.

Thank you, Frank. In summary, we believe we've entered NED 2025 in a boost of financial and operational strength as a result of our long-standing commitment to a science-driven approach to improve the lives of the patients we serve. Our continued investment in innovation, along with excellent execution, can enable us to deliver value to patients, clinicians, and stockholders. Thank you for your continued interest and capital. Now, we would be happy to take your questions. Operator?

Thank you. In order to allow everyone in the queue an opportunity to address the council management team, please limit your time on the call to one question and one follow up. And if you have any questions, please return to the queue. Please stand by while we compile the Q&A roister. Your first question comes from Subbu Nandi with Guggenheim. Please go ahead.

Thank you for taking my question. In our checks, we have noticed that private DERMs usually prefer decision DX melanoma, but DERMs in academic center are still hesitant to order more broadly before guideline inclusion. One, do you agree in the absence of guideline update, how should we think about the opportunity?

So, if I understood the comments back from your interviews, I guess that flies A little contrary to the what the 100, 800, the 1,800 new first time ordering clinicians. In 2024, the order the melanoma test. So while it could be. That there are clinicians who have. Been common users and they have. Kind of followed into what they've used a sweet spot. So maybe there's not much expansion for some of those current customers. We did see substantial growth in new first time ordering clinicians last year as well as in 2023. From our perspective, outside of a few of the sort of NCCN centers, we don't hear much feedback at all regarding NCCN guideline inclusion or lack thereof as driving any sort of a personal decision around treating individual patients, except for, again, a couple of the NCCN institutions who I guess feel obligated to follow guidelines as opposed to treating patients individually.

Thank you for clarifying, Derek. I want to bring back to atopic dermatitis gene expression profile test that I think is planned to launch by end of 25. If the validation study results come through, when should we expect reimbursement update for this product?

Reimbursement or launch updates?

Launch and reimbursement.

Yeah, so we don't, at this point in time, we believe, assuming, as you said, that the rest of the validation study finishes out successfully, that we would be on target at this point in time to still launch in late 2025. And I think we discussed this earlier in January, maybe with third quarter earnings. Once we see what our final profile looks like and the relative value to both clinicians and payers, then the teams work in the next four or five or six seven months is to really work through that exact same questions to be which to say how do we want to make this test available clinically so that It's doing good for patient outcomes, and CASEL's getting fairly reimbursed, and there might be some non-traditional approaches. So I think one of the next several quarters of 2025, expect to have us provide some good clarity on that, I think. But as I say, I think I want to see what the profile looks like so we can really focus in on what that reimbursement strategy will actually be post-launch, assuming we're successful, of course, in the R&D part of the business. Either way, though, I would say starting from, you know, volume of zero to some volume that's higher than that, that I would not expect much material revenue, I guess is the way to say it all, probably until, what, 28, 29 probably is the right time for you to think about that, Sabu.

Thank you. Your next question comes from Sangina with Scotiabank. Please go ahead.

Hi. Thank you for taking the questions. On tissue cipher and getting the New York State Department of Health approval there, what percentage of the addressable market does New York State represent?

Oh, that sounds like an AI Google question. I don't know off the top of my cup here. I'm assuming it's going to be demographically there would be nothing different to say would not be similar to the population of New York as a percentage of the overall U.S. population. I don't think there's any, there's no age difference or no health difference that I would think would make them a heavier or lighter player than just the average percentage of the U.S. population lives in New York.

Gotcha. And then just on the decision of the XFCC, kind of what's the commercial strategy while you're continuing to you know, resolve the reimbursement issues. Just kind of curious if you will continue to offer the test to patients or clinicians that order the tests and how we should think about that for the.

That's a great question. So should we lose coverage towards the end of April, which is the current expectation? One, from just a non-council perspective, but more of a patient care perspective, it'll be hugely disappointing to have Medicare beneficiaries be referred to and undergo adjuvant radiation therapy. We know, based upon our two large multicenter studies that were published last year, that roughly 60% of them will not respond to that intervention. The other patients will, which is fantastic, but you're, you're really over radiating people and that's that that will be disappointing that that continues to go on despite the fact that use of our tests and directing radiation therapy. We believe extracts over 900Million dollars a year in in excess of spend because you're, you're removing from the patient. Now, that being said, his background. I think how we would approach this today is to say if we believe there's a reasonably short-term approach to regaining reimbursement for Medicare, then we would leave the test on as is, I think, so that patients can benefit in the interim period. If we think it's a longer-term challenge to regaining coverage through Medicare, then I think we have to balance out somewhat of the needs of the shareholders in terms of an impact on gross margins, as well as the impact on Medicare pressure to go ahead and have that test covered. So, right now, I don't anticipate that we would make the choice of taking it off the marketplace completely. That seems quite harsh and not in the orientation of a patient-focused company.

Great. Thank you for taking the questions.

Thank you. We now have Thomas Flatton with Lake Street on the line.

Hey, good afternoon. Thanks for taking the questions. In the press release, you mentioned the potential for strategic opportunities with respect to capital allocation. Should we be thinking about existing verticals, new verticals, maybe both? Just help us out with that a little bit.

So I think we are... I'm always looking at taking our capital and saying, what can we do to invest in our current commercial efforts to drive appropriate volume and revenue on the top line, looking at what we can fund for internal pipeline and also external opportunities, as you noted there, Thomas. From just a peer profitability driver for CASEL, it's easier to model out and think about locating additional test services that fit in our current verticals because we already have an infrastructure there that we can go ahead and just diversify costs across. That being said, We were not in gastroenterology three years ago when we bought Cernostics to acquire TissueCypher. So I think we are focused both on seeing what assets are there that can fit with our current portfolios, but are not adverse to looking at another area if it makes good sense and we see good strong upside.

Got it. And then, Frank, one for you. With SCC most likely disappearing from the top line, and keeping in mind you had a really strong adjusted EBITDA number in 2024, Any help you can give us on how to think about adjusted EBITDA for 2025?

Yeah, Thomas, we just continue to reiterate we expect to be adjusted EBITDA positive for the year. We haven't given any scope or scale to that.

Got it. Appreciate it. Thanks, guys.

Yep.

Thanks, Thomas.

Thank you. We have Paul Nye with KeyBank on the line.

Hi, Derek. Frank, question on SCC. Obviously, you're assuming that that ends fairly quickly, but is there any residual from non-Medicare payers and private pay on SCC?

Not significant commercial payment there on SCC. Still very early.

And then, you know, strategically, what's the M&A market in the world of diagnostics right now? Is it, have you seen the pipeline mature and it's possibly a great market because deal flow has kind of been light, but, you know, research maybe has not flowed down. What's your feeling about, you know, are you buying things that are, let's call it, more mature in this world?

You know, there's certainly lots of assets in the diagnostic space, Paul, but, you know, our filter is pretty thin. And so we certainly haven't changed that view or haven't had a sense that we loosen that filter. So I think the same sort of discipline and approach is how we're comfortable thinking about things.

And then as we think about 25, how should we model SG&A? Is the Salesforce expenditure and overhead increasing in 2025?

We have made some expansions to the tissue side for Salesforce, and that's – A good bit of that was reflected in the Q4 number. I think we'll continue to get leverage in the P&L, but we don't see any very sweeping large changes to the sales force, but we will continue to add and invest in that asset as we see continued penetration on our test menu.

Okay. Thank you.

Thank you. We have Mason Carrico with Stevens. Please go ahead.

Hey guys, thanks for taking the questions. This is Ben on for Mason here. I wanted to start with the Q4 impacts from the hurricanes and holidays. Do you have a sense for these patients being able to be rescheduled in Q1 or potentially, I guess, late in Q4? And then how do these patients factor into your melanoma framework for the start of the year here in 2025? All right.

Yeah, it's hard to say when patients get caught up. You know, derms are pretty full, and we've spoken before, and the best analogy is when, you know, an airline cancels a plane, there aren't 180 empty seats on the next plane to put them on. So they've got to, you know, find ways to move them around, and docs have to do the same. So we don't really have a good sense of when those patients float through and how many of them are lost. We think Q1 is probably going to set up like normal for Q1, and you've got two very large physician meetings in the quarter. You've got patient deductibles resetting. So as we said in the release, you know, we expect typical seasonality for Q1 that we've seen in past years.

Okay, great. Thank you for that. And then appreciate the gross margin color that you guys gave. was just hoping that you'd be able to provide some additional detail as SEC rolls off starting in April, just how we should think about the cadence there as we move throughout the year. Thank you for taking the questions.

Yeah, sure. So, yeah, the adjustments we referenced and the expected adjustments or impact on gross margin would be, you know, at the time reimbursement is pulled back. So it wouldn't be phased in. It would be – It would be right at the end of that coverage.

Thank you. We have a question from Catherine Schult with BED.

Hey, everyone. This is Tom Peterson on for Catherine. Thanks for taking our questions. You know, I wonder if you could kind of walk through your latest thoughts, you know, on SEC promotional efforts following assumed non-coverage here in late April. I guess specifically, how are you thinking about potential changes to the dermatology Salesforce incentive structure? Is there any contemplation around shifting those more towards DX melanoma?

Yes is the answer. So, depending on what we see between now and the end of April, we will be Shifting, if not 100%, very, very close to that towards the melanoma test only beginning probably May 1st, and obviously we'll watch and see what plays out the next couple of months here, if that's the right call or not. The only element that might change a switch back to some kind of a shared compensation, not 50-50 at all, but something else that's 90-10, 80-20, would be if we see a line of sight to having near-term reimbursement regained or maintained. Otherwise, the expectation here is that we move back to being close to 100% for melanoma.

Got it. Thanks. And then I know you've got some questions and comments on the Tissue Cypher Salesforce expansion to end 2024. Sounds like maybe a couple incremental ads here to start 2025. I guess, can you just give us some more color on where that fits today, what the expectation is for 2025, and if you could remind us, you know, how you think about that Salesforce size long term.

So, we think there's roughly 10,000 targetable gastroenterologists who perform upper endoscopies. In that group, there's a small number who are really focused on upper endoscopies and ablation procedures, et cetera, who are in that group there. We don't quite know today, or maybe I'm not as confident as I should be, about how important or how unimportant the advanced practice participants are, nurse practitioners, physician's assistants in sort of maintaining clinical interaction with patients diagnosed with bariatric esophagus. So if you just go ahead and assume that they aren't managing those patients per se, and it's really just the gastroenterologist with the MD or DO degree behind their name, then sitting in kind of the low 60s is probably insufficient by maybe 15 to 25 sales representatives. So part of our expectation here is to kind of watch and see how this most recent increase in territory size matures during the second quarter and then probably make additional expansion opportunities third and fourth quarter as we sort of see the relationships building among our expanded territories with the current customers and new customers so we don't expand too fast to go ahead and cause more disruption but expand at the right rate. And at the end of the day, I guess we should come back here is We aren't quite sure if in the 60 range is where we should be sitting, and part of that's looking at promotional responsiveness and territory sizes and travel time, but probably somewhere between 60s to 80s feels about right at full maturity.

Thank you. We have Mark Marceau with BTIG.

Hey guys, this is Vivian on for March. Thanks for taking the questions. I'll just keep it to one. So just on the Novotas non-coverage of SCC, could you just remind us of the other pathways that are available to you in contesting that in either continuing discussions with Novotas or potentially flexing to a different lab such that you might be covered by a different Medicare contractor? Thanks.

Yeah, so there are in the part of integrity manual, they're outlined different processes approaches one can take to. To interacting when there's an LCD in place, 1 of those would be a reconsideration request, which we would expect to enter into with Nova toss. If the policy finalized as is. We are aware of another laboratory that has filed a lawsuit against Novotox for this LCD Pacific Edge that went up, I guess, a week or two ago. That may have an impact on the policy timing of this LCD being effective, or it may not have an impact, but at least there seems to be other laboratories who are aware of similar kinds of issues. There is also a administrative law judge challenge, which would usually take a patient to work with you to do that. And then that sort of are the main pathways within NOVA TOS directly. As you may recall, we do have a LCD opportunity with with the moldy X group and as we talked about last fall, and they finalize that policy, they. Did not do to the timing of our publications. Review the adjuvant radiation therapy response data, but dropped in a comment or 2. In the LCD being aware that they were aware of some promising early data. So we take that as as a as a. indication that that is a very interesting or interested clinical use perspective. So we are and would pursue that approach as well for a positive LCD through the Multi-X program. Those are the main avenues.

Great. Thanks for taking the question.

Thank you. We now have Carl Mickelson with CannaCode.

Yeah, hey guys, thanks for the questions. Just based on consensus, most estimates did not include SAC. If you assume like a quarter and a third of SAC, the guidance probably should have like touched or bracketed $300 million. Could you just, and obviously I feel like you didn't express that or provide that, but can you talk about the quarterly assumptions for SAC you know, 1Q and 2Q, is that kind of like flat relative to like, you know, end of 24 levels? And then the acceleration of decision-making on them throughout the year, maybe that benefits from the roll-off of SAC as the commercial team kind of like reallocates its efforts.

Frank? Frank, I think you're on mute if you're still on.

I am. Thank you. I said I'll cover the guidance and let Derek answer the second part. The guidance assumes SEC coverage through the LCD effective date of April 24th.

In terms of acceleration of melanoma volume, as the back half of your question there, we went from being solely focused with the Salesforce more than half – Less than half the current size or at Kyle. I guess it was summer of 2022 when we went to to splitting Salesforce focus between melanoma and SEC. And we expanded quite a bit since that point in time. So we would expect some accelerated growth once we return to a fully focused melanoma sales team. But to be quite honest, don't have any sort of recent history with this number of people in the field about what that might look like for momentum. So I'd rather not over or under set expectations, to be honest, at this point in time until we kind of see how our customers respond in the second quarter.

Okay, that was great. And then just second one, can you kind of talk about the white space or green field opportunities for melanoma tests, whether that's in the clinical opportunity market or academics or regional kind of differences, I guess. Is deep penetration in the current practices a material growth driver, or do you have to kind of look outside that into adjacent areas?

Okay, okay. Let me see if I can break it down briefly. So we had, was it 800? 1800 new order and clinicians first time ever last year. And that was close. We saw in 2023 as well. So it's. surprising, interesting, I don't know what you want to call that, but after being on the marketplace for several years, there were still that many numbers of kind of dermatologic or surgical customers who are adopting our tests for the very first time ever. So there is still, I think, good growth in 25 and beyond. Of attracting clinicians who maybe they were tough to see. Maybe they were residents coming into practice. They weren't here 3 or 4 or 5 years ago. Maybe they were nurse practitioners or that are fresh out of school and just learning about new technologies like ours. So, I think that's that's that is 1 error growth going forward. necessary slowing down a whole lot because of just the new clinicians going into dermatology and also just getting around to those who are either late adopters by style or maybe they are hard to go ahead and get a hold of and communicate to. In terms of current ordering customers, when we analyze our data, one of the things that we do look at is Breslow's thickness on the patients who our test is ordered in. And if we kind of look at the NCI SEER data, we can look at at least the reported melanoma cases in half the country relative to their Breslau thickness and what's called their T stage or their tumor stage. And we can then marry against what kind of orders we're seeing coming in from an individual clinician. If we find out that the only orders that clinician is giving us are first aid patients that are between, say, 0.8 millimeters thick and maybe call it 1.5 millimeters thick. And we're getting almost nothing else from that physician or that nurse practitioner PA. We would say that clinician has sort of found what they believe is a sweet spot of our test in our practice because nobody only has those patients. And so we have articles and performance studies and clinical use studies that the sales force knows how to use that would go back into that same clinician who is sort of limited use of our tests for a certain patient population. Hey, this is what I'm seeing and what you're ordering. Can we kind of go through data over here in thinner patients and see the value that some of your peers are getting? Would you agree to that? And in some cases, we aren't successful. But in other cases, we are successful in seeing that clinician review the data, think about how they would apply clinically. and expand use in these other customer ranges. So that is an opportunity as well. And then we do see other customers who are current customers who looks like they're ordering our tests across the spectrum of patients that they're diagnosed. That probably is close to 89, 100% penetration for that individual clinician's practice. And obviously that's really more about maintaining and reinforcing that they are making good clinical decisions based upon the use of our test.

Thank you.

Thank you. I would now like to hand it back to Derek for some final closing comments.

Thank you, operator. This concludes our fourth quarter and four-year 2024 earnings call. Thank you again for joining us today and for your continued interest in Castle Biosciences.

Thank you all for joining. I can confirm that does conclude today's call. Please enjoy the rest of your day and you may now disconnect. Thank you for your participation.